Document Type
Article
Abstract
In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance. High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of corporate boards, high trust can be too much of a good thing.
Digital Object Identifier (DOI)
Publication Info
Published in Journal of Financial & Quantitative Analysis, Volume 59, Issue 6, 2023, pages 2899-2932.
Rights
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
APA Citation
Bae, K.-H., Ghoul, S. E., Gong, Z. (Jason), & Guedhami, O. (2023). In the CEO We Trust: Negative Effects of Trust Between the Board and the CEO. Journal of Financial and Quantitative Analysis, 59(6), 1–34.https://doi.org/10.1017/S0022109023000790